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Shareholding Pattern

The ownership structure of a company matters! Learn all about it in this chapter.

Gopal Kavalireddi
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Post the IPO of any company, a continuing responsibility of the management, is to provide a detailed account of all the shareholders of the company, as part of the listing obligations and requirements of the stock exchanges. This shareholding pattern is declared to the stock exchanges at the end of each quarter, before the announcement of financial results.

The shareholding pattern of a company has to be declared in the formats provided. There are 3 main categories encompassing the shareholding structure for a company, namely, Promoter and Promoter Group (A), Public Shareholding (B) and Non-Promoter & Non-Public Entities (C1, C2).

The broad shareholding pattern of Prakash Industries Ltd. Is illustrated for highlighting the categorization.

share_holding_illustration_1

 

Promoter and Promoter Group (A)

This section of the shareholding corresponds to, the person(s) who are - in control of the issuer, instrumental in the formulation of a plan through which specified securities are offered to the public, named in the offer document as promoters.

Promoter Group implies, an immediate relative of the promoter (i.e., any spouse, parent, brother, sister or child of the promoter). In case the promoter is a corporate body, then a subsidiary or holding company of such corporate body as defined and specified by SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (source) becomes a part of the promoter group.

 

Public Shareholding (B)

This section of the shareholding corresponds to Institutions and Non-Institutions including retail investors. Qualified Institutional Buyers (QIB), shareholders holding 1% or more than 1% of shares of the listed entity are included in this section of shareholding.

 

Non-Promoter & Non-Public Entities (C)

This section of the shareholding corresponds to the shares held by Depository Receipt holders with voting instructions (C1) and Employee Trusts (C2). (source)

Total shareholding for the purpose of calculating the public shareholding is declared as (A+B+C2) in line with the necessary regulations and,

  • Percentage of promoter shareholding is calculated as A/(A+B+C2) * 100.
  • Percentage of public shareholding is calculated as B/(A+B+C2) * 100.

 

Pledging/Sale of Shares

At times, promoters pledge/sell a portion of their shareholding to raise funds for purposes of infusing capital or to pursue a different growth avenue, which can be in a new direction, without putting the company at risk. This information has to be provided to the stock exchanges. Normally, an early declaration of pledging/sale by the promoter to the stock exchanges is a sign of good governance. Such good management practices reduce the volatility of the stock price and provide confidence to other investors to stay invested, without selling along with the promoter.

The detailed break-up of all the shareholders under the Promoter and Promoter Group Holding (A) for Prakash Industries is highlighted as:

share_holding_paxxxttern_illustration_2

A higher shareholding of the promoter is considered to be good, and as a sign of the trust in the future growth prospects of the company and is an important parameter for investing. But, too high promoter shareholding is also not conducive, as it reduces the public float in the market and traded volumes/price discovery doesn’t reflect the true value of the stock.

When an entity becomes professionally managed and doesn’t have any identifiable promoter, the existing promoters may be re-classified as public shareholders subject to approval of the shareholders in a general meeting (source).

The detailed break-up of all the shareholders under the Public Shareholding and Non-promoter & non-public entities for Prakash Industries is highlighted as:

share_holding_paxxxttern_illustration_3

A consistent decrease or a significant fall in the promoter's stake can also indicate serious issues in a company. It could mean that the promoters don’t believe in the growth prospects of the company and are losing interest in the business or lenders are selling the pledged stake or are converting the company's debt to equity.

When promoter shareholding is reduced by giving to another strategic investor, who can bring strategic value or operational efficiency to the company, it can be a positive move. At the same time, assuming that decreasing promoter shareholding is good or bad without understanding the circumstances or perspectives is not appropriate. It is important for the investor to identify the reasons for a low or high holding before making investments in the company.

All the above-mentioned reports need to be provided as mandated by the regulatory authorities on a quarterly basis and at the end of each financial year, are collated into the annual report which is comprehensive in nature. This Annual Report provides sufficient information on all aspects and activities of the company, which in turn is used by current and prospective investors in selecting any particular company for investment.  

 

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Samika commented on April 25th, 2019 at 12:00 PM  
As a potential investor, what would you recommend be the ideal percentage of shares held by various entities in a company?


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